The T&E Litigation Update is a recurring column summarizing recent trusts and estates case law. If you have question about this update or about T&E litigation generally, please feel free to e-mail the author by clicking on his name above.

Sacchetti v. Sacchetti

In Sacchetti v. Sacchetti, Case No. 10-P-2200, 2012 Mass. App. Unpub. LEXIS 1000 (Sept. 24, 2012), a decision issued pursuant to Rule 1:28, the Appeals Court addressed cross-appeals from a judgment following the eleven-day trial of a dispute between father and son concerning the father’s assets.

Evo Sacchetti and his wife Lynn relied on their son Kenneth Sacchetti for investment advice. According to that advice, Lynn listed Kenneth’s name as a joint tenant on some of her accounts to avoid probate. Following Lynn’s death in 1989, Kenneth claimed ownership of these joint accounts and promised to transfer them to Evo. Kenneth also assumed control of Evo’s finances, who believed he could trust Kenneth in financial matters. When Evo suffered a stroke in 2008, however, Kenneth continued to claim ownership of the joint accounts with Lynn as well as certain accounts he held jointly with Evo, and also claimed a fifty-percent interest in the family home in Milton as a joint tenant with Evo with a right of survivorship. Evo subsequently filed suit in Superior Court against Kenneth for breach of fiduciary duty and other torts arising from Kenneth’s alleged manipulation of Evo’s assets over a twenty-year period.

The Superior Court ruled in Evo’s favor, ordering Kenneth to reconvey title to the Milton home to Evo and to convey certain bank and brokerage accounts to Evo. Both parties appealed from the judgment. Evo appealed from the denial of his motion to make additional findings and to amend the judgment, which failed to require Kenneth to account for $1.1 million in withdrawals he had made from an account that was found to belong to Evo. Kenneth appealed from the denial of his motion for a new trial or to alter or amend the judgment, arguing that the statute of limitations had expired on some of Evo’s claims and that the judge erred in concluding that Kenneth was not the owner of certain funds.

The Appeals Court affirmed in part (denying Kenneth’s request for a new trial or an amended judgment) and reversed in part (granting Evo’s request for additional relief).

Regarding Kenneth’s statute of limitations defense, the Court recited the well-settled principle that a cause of action for breach of trust or fiduciary duty does not accrue until the trustee repudiates the trust and the beneficiary has actual knowledge of that repudiation. The Court then held that the trial judge was not required to believe Kenneth’s naked assertions that Evo “knew” of Kenneth’s breach of fiduciary duty and thus that his claims had accrued and expired long ago. It was a question of credibility, and there was no error in the trial judge’s conclusion that the statute of limitations did not begin to run until 2008, after Evo had suffered a stroke and his family and financial experts began to review his assets and discovered Kenneth’s wrongdoing.

The Court also rejected Kenneth’s argument that the trial judge erred in concluding that Evo was entitled to the proceeds of the sale of “Kenneth’s” Florida condominium because Evo’s name was not on the deed. Kenneth had not included the deed in the record, and thus there was no documentary support for Kenneth’s argument that Evo’s name was not on the deed. Moreover, even if it were true that Evo’s name was not on the deed, the Court explained that the evidence permitted the reasonable inference that it was Lynn’s and/or Evo’s money that was used to purchase the condominium, and that the trial judge could properly deny Kenneth’s contention that his parents intended to make a gift to him.

Regarding Evo’s argument that Kenneth should be liable to account for the $1.1 million he had withdrawn from Evo’s account, the record reflected Kenneth’s concession that he had withdrawn the funds and deposited them into other accounts, including $989,000 into his own account with Weymouth Bank. Although the Court acknowledged that not all of the funds in the Weymouth Bank account derived from Evo’s funds, the Court found this fact to be irrelevant. Kenneth had failed to demonstrate that the withdrawn funds were provided to or used for Evo’s benefit, and so the Court ordered Kenneth to return the funds to Evo. The Court noted that it was not incumbent on Evo to prove that all of the funds in the Weymouth Bank account belonged to him, even though that account is a source from which Kenneth may repay the funds he withdrew..

Porst v. Deutsche Bank National Trust Company

In Porst v. Deutsche Bank National Trust Company, No. 11-04137, 2012 Bankr. LEXIS 4680 (Bankr. D. Mass. Oct. 4, 2012), the U.S. Bankruptcy Court for the District of Massachusetts discussed what constitutes valid revocation of a revocable trust and whether the trustee of a revocable trust owes any duties to contingent remainder beneficiaries.

Mother established the revocable trust, naming herself as trustee and reserving to herself a life estate in any real property conveyed to the trust. The trust provided that upon mother’s death, her son would receive a life estate in the family home if it were still held in the trust. The revocation provision provided that mother could revoke or amend the trust by delivering to the trustee a written instrument that she had “signed and acknowledged.”

Ten years later, mother executed a document purporting to revoke the trust. The document bears the signatures of two witnesses, but was not acknowledged before a notary public. In her capacity as trustee, mother also deeded the family home from the trust to her son for one dollar. The son subsequently obtained a loan secured by the family home, and then filed for bankruptcy protection. The holder of the security interest filed a proof of claim in the bankruptcy proceeding. One of the issues in dispute was whether the security interest was valid, which turned on two questions – whether mother’s revocation of the trust was valid, and if not, whether her conveyance of the family home from the trust to her son was valid.

On the first question, the Court set forth the established principle that “a valid trust, once created, cannot be revoked or altered except by the exercise of a reserved power to do so, which must be exercised in strict conformity to its terms.” Based on this principle, the Court held that mother’s revocation of the trust was not valid because it was not in strict conformity to the trust’s revocation provision, which required the instrument to be signed and acknowledged by her. In reaching this holding, the Court relied on the following rationale from Phelps v. State Street Trust Company, 330 Mass. 511, 512-13 (1953): “We think that the requirement of acknowledgement meant that the settlor must acknowledge the instrument making the alteration before a public officer authorized by law to take acknowledgements of other writings. . . . And we think that the requirement of acknowledgement was not wholly for the benefit of the trustees, and that it could not be waived by them.”

On the second question, the son argued that even if the trust revocation were invalid, mother could not convey the family home from the trust to him for the inadequate consideration of one dollar, because doing so constituted a breach of her fiduciary duty to the contingent remainder beneficiaries (including himself, ironically). The Court rejected this argument, holding that because mother had the power to revoke the trust, she was free to do whatever she wanted with the family home. The Court reasoned that during the lifetime of a settlor/beneficiary of a revocable trust, a trustee is under no duty to consider the interests of the contingent remainder beneficiaries, because those interests may be divested by the settlor. “To hold otherwise would eviscerate an underlying purpose of the revocable trust and disrupt the expectations of the settlor.”

Accordingly, mother’s conveyance of the family home from the trust to her son was valid, and thus the security interest in the family home that the son subsequently gave to the lender was valid.

The settlor died in 2006. The trust provides that upon the settlor’s death, the income is to be used to fund one or two scholarships of $10,000 to students at Scituate High School. Any income not distributed as scholarships is to be added to principal.

The trustee proposed to reform the trust in two ways. First, the trustee sought to include language in the trust evincing the settlor’s general (as opposed to specific) charitable intent, thereby allowing the trust to qualify as a private charitable foundation and thus be exempt from income tax. Otherwise the trust would have to pay income tax at a high marginal rate, thus reducing the income available to distribute as scholarships. Second, the trustee sought to amend the requirement that any income not distributed as one or two scholarships of $10,000 be added to principal, because undistributed income retained by a private foundation is taxed at the rate of 100%. Again, this tax would reduce the amount available for scholarships.

Based on the evidence in the record, which included an affidavit from the drafting attorney and affidavits from two of the settlor’s friends who attested to her charitable donations and volunteer work, the Court found that the trust’s failure to reflect the settlor’s general charitable intent was a scrivener’s error. The Court also found that imposing a tax on the undistributed income retained in the trust would defeat the settlor’s intent to have as much of the trust income as possible used for scholarships.

Accordingly, the Court held that the trust shall be reformed to include the requested language evincing the settlor’s general charitable intent, and to amend the requirement that the scholarships be limited to one or two in the amount of $10,000, with the undistributed income added to principal. The amended language will read as follows: “If the Distributable Funds exceed Ten Thousand Dollars ($10,000), the Distributable Funds shall be divided into a number of scholarships in equal amounts, provided, however, that each scholarship must be at least Ten Thousand Dollars ($10,000).”

The Boston Bar Association Trusts & Estates Section Blog provides information as a service to its users and BBA members. Neither the Trusts & Estates Section nor the Boston Bar Association are a law firm and do not represent clients in any way. Although the information on this site is about legal issues and informational services it is not legal advice. Use of this blog does not in any way create a lawyer-client relationship. If you need a lawyer, the Boston Bar Association Lawyer Referral Service can refer you to a qualified attorney. http://www.bostonbarlawyer.org/ or call 617-742-0625.

The T&E Litigation Update is a recurring column summarizing recent trusts and estates case law. If you have question about this update or about T&E litigation generally, please feel free to e-mail the author by clicking on his name above.

Bedard v. Corliss

In Bedard v. Corliss, Case Nos. 11-P-2118 & 11-P-2173, 2012 Mass. App. LEXIS 241 (Aug. 23, 2012), the Appeals Court addressed complications arising in the intestate estate of a wife when it was learned that she and her surviving husband had not been validly married.

Ethan and Carol were married – or so they believed – in Mexico in 1983. Over the next 21 years, they lived together and held themselves out as husband and wife, filing joint tax returns, maintaining joint accounts, etc. Carol died intestate in 2004, and Ethan as her husband was appointed the administrator of her estate with the assent of her three children from a prior marriage. As administrator, Ethan distributed assets in accordance with Carol’s wishes. Specifically, though he had no obligation to do so, he transferred $120,000 to the children from a joint account in which he had a right of survivorship. He also believed that Carol wanted him to have a life estate in their cottage in Maine, which was titled in her name, and that the cottage was to go to the children upon his death.

When one of the children later became dissatisfied with Ethan, the validity of his marriage with Carol was challenged, and through the ensuing investigation it was revealed that their marriage had been invalid because it was not in compliance with Mexican law. With the parties stipulating to the invalidity of the marriage, the children filed a petition to revoke Ethan’s petition to administer Carol’s estate, and Ethan filed an equity action claiming that the children had been unjustly enriched by the assets he had distributed to them.

The Probate Court entered judgment revoking the decree appointing Ethan as administrator of the estate, concluding that because he was not married to Carol at the time of her death, he could not be appointed the administrator pursuant to G.L. c. 193, §§ 1 and 2. The Probate Court also struck Ethan’s name from the list of Carol’s heirs.

In the equity action, the Probate Court concluded that Ethan had distributed the $120,000 from his account (the joint account with Carol with a right of survivorship) to the children on the basis of two mistakes of fact. “The Court finds that Ethan made a mistake of fact when he believed that Carol’s children considered Ethan to be Carol’s husband, and Ethan made another mistake of fact when he believed that the children would follow through with their mother’s wishes.” As a result of these mistakes of fact, the Probate Court held that the children had been unjustly enriched, and ordered the children to return the $120,000 to him.

On appeal, the Appeals Court reversed the Probate Court’s judgment removing Ethan as administrator, holding that the children were estopped from challenging the validity of Ethan and Carol’s marriage because Carol herself would have been estopped from challenging the validity of the marriage, having received the benefits of the marriage. In light of this reversal, the Appeals Court vacated the judgment in the equity action for further proceedings.

The Boston Bar Association Trusts & Estates Section Blog provides information as a service to its users and BBA members. Neither the Trusts & Estates Section nor the Boston Bar Association are a law firm and do not represent clients in any way. Although the information on this site is about legal issues and informational services it is not legal advice. Use of this blog does not in any way create a lawyer-client relationship. If you need a lawyer, the Boston Bar Association Lawyer Referral Service can refer you to a qualified attorney. http://www.bostonbarlawyer.org/ or call 617-742-0625.

In Bird Anderson v. BNY Mellon, N.A., the Massachusetts Supreme Judicial Court held that the 2009 Amendment to G.L. c. 210, § 8 including adopted children in the definition of “child” under trusts and wills cannot be applied retroactively to instruments executed prior to 1958.

Facts:In 1941, Anna Child Bird (“Anna”) executed a will and testamentary trust for the benefit of her son and issue (“ACB Trust”).At the time the will was executed, G.L. c 210, § 8 (“Section 8”) provided that, subject to clear intent to the contrary, adopted children were excluded from the definition of “child” in testamentary instruments.In 1958, Section 8 was amended to provide that the term “child” would include adopted children in all such instruments executed thereafter (“1958 Amendment”).In 2009, Section 8 was further amended to provide that the word “child” would include adopted children in all testamentary instruments, regardless of when such instrument was executed (“2009 Amendment”).

Under the ACB Trust, the income of the trust is distributed to Anna’s issue and, upon termination, all trust principal will be distributed to Anna’s issue by right of representation.Plaintiff Rachel Bird Anderson (“Rachel”), is Anna’s great-granddaughter.In 2007, Rachel began receiving a portion of the income of the trust.Rachel’s two adopted brothers, Marten and Matthew, did not receive income from the ACB Trust. The Trust fell under the pre-1958 rule stating that adopted children were excluded from the definition of “child” and, therefore, they were ineligible as beneficiaries.

In 1981, Julia Bird (grandmother of Rachel, Marten and Matthew), established a charitable lead trust.Upon termination, the trust principal was distributed to Marten, Matthew and Julia’s great-grandchildren, specifically including the children of Marten and Matthew.Rachel was not a beneficiary of this trust.

On July 19, 2010, the Trustees gave notice that in light of the 2009 Amendment, Rachel’s adopted brothers, Marten and Matthew, were now considered Anna’s “issue” for purposes of the ACB Trust and, therefore, qualified as beneficiaries.

Analysis:The Court dismissed arguments regarding the legislative history of the 2009 Amendment and whether Section 8 is an evidentiary rule raising no constitutional concerns when applied retroactively.The Court focused its analysis on whether retroactive application of the 2009 Amendment to pre-1958 trusts is unreasonable and therefore, unconstitutional.

The Court first considered the public interest of equalizing the inheritance rights of adopted and biological beneficiaries motivating the 2009 Amendment.The Court questioned whether that interest was reasonably served by the statute due to the fifty-two year gap between the passage of the 1958 Amendment and the 2009 Amendment. This gap allowed grantors and testators time to make compensatory plans to equalize their estates between adopted and biological beneficiaries.The Court inferred that such deliberate equalization prompted Julia Bird to establish the charitable lead trust for the benefit of Marten and Matthew while specifically excluding Rachel.The Court concluded the 2009 Amendment only weakly served the public interest it sought to protect.

The Court then evaluated the nature of the rights affected.As plaintiff, Rachel was required to show she has a substantial, vested interest which was significantly harmed by the retroactive application of the 2009 Amendment.In determining Rachel’s right as a beneficiary, the Court followed the reasoning of Billings v. Fowler, 361 Mass. 230 (1972) and measured “the likelihood that the person claiming a vested right will eventually come to enjoy that right.”Where there is a substantial likelihood of enjoyment, the Court considered the right vested even if it could be defeated or diminished by biological events.Here, the Court found Rachel had a vested interest in the ACB Trust even though it could be diminished by the birth of siblings or destroyed by death.The Court concluded that the retroactive application of the 2009 Amendment would significantly harm Rachel’s vested interest in the ACB Trust by reducing her share from 50% to 16 2/3% of the income and principal of the trust.

In addition to the vested interests of the beneficiaries of the ACB Trust, the Court explored the rights of all testators, settlors and grantors who had relied on the law in effect at the time they executed testamentary instruments.The court reasoned it was likely most testators and grantors are advised by council regarding current law when executing such instruments. Retroactively changing any rule of construction affecting property rights would significantly impact the rights of such testators and grantors to rely on the law then in existence when creating their estate plans.

Finally, the Court balanced the public benefit and the significant harm to Rachel’s vested interest in the ACB Trust and the presumptive reliance interests of Anna and Julia as testators due to the retroactive application of the 2009 Amendment.The Court acknowledged the goal of ensuring equality between biological and adopted children, but found that the 2009 Amendment caused significant harm to Rachel, Anna and Julia’s substantial rights and was therefore unreasonable.

The Court made two significant final points.First, the Court recognized that other states have decided this issue differently, but pointed out that this case is in line with Massachusetts common law. The Court indicated that the other Courts had given insufficient weight to the substantiality of the interests held by current beneficiaries and ignored the “bedrock principal” that a testator is entitled to rely on the state of law at the time of execution of a testamentary instrument.Second, the Court clarified that given the uncertainty of the law caused by the 2009 Amendment, any Trustees who either made distributions or declined to make distributions to adopted beneficiaries in reliance on the 2009 Amendment had not abused their discretion or acted in a manner inconsistent with their responsibilities as Trustees.

The Boston Bar Association Trusts & Estates Section Blog provides information as a service to its users and BBA members. Neither the Trusts & Estates Section nor the Boston Bar Association are a law firm and do not represent clients in any way. Although the information on this site is about legal issues and informational services it is not legal advice. Use of this blog does not in any way create a lawyer-client relationship. If you need a lawyer, the Boston Bar Association Lawyer Referral Service can refer you to a qualified attorney. http://www.bostonbarlawyer.org/ or call 617-742-0625.